Chevron has produced and shipped its first cargo from the LNG megaproject in Western Australia
Chevron has announced first production from its Gorgon project, in Western Australia. The development, the world’s most expensive LNG plant at a cost of around US$55 billion, is late and over budget, and the start of production will provide further supply to a region already grappling with a gas glut.
The US company celebrated the start on March 7. Its first cargo was shipped to Japan’s Chubu Electric Power on March 21. Gorgon, which is based on Barrow Island, off the northwest coast, will reach production of 15.6 million tonnes per year of LNG. The project also includes around 20,000 barrels per day of condensate production. The next two trains will start up at six-month intervals, the company said.
The development includes the liquefaction plant, a carbon dioxide injection project and a domestic gas plant that will be able to provide 300 terajoules (8.1 million cubic metres) per day of gas to Western Australia. Feedstock comes from the Gorgon and Jansz-Io fields, which are 130-220 km offshore.
“We expect legacy assets such as Gorgon will drive long-term growth and create shareholder value for decades to come,” said Chevron’s chairman and CEO, John Watson. “The long-term fundamentals for LNG are attractive, particularly in the Asia-Pacific region, and this is a significant milestone for all involved.”
Chevron also holds equity in the Wheatstone LNG project, with the company saying that more than 80% of its equity gas from these two developments was covered by sales and purchase agreements (SPAs) and heads of agreements (HoAs) with regional customers.
Chevron has a 47.3% stake in Gorgon and is the operator. ExxonMobil and Royal Dutch Shell each own 25%, while Osaka Gas has 1.25%, Tokyo Gas has 1% and Chubu Electric Power has 0.42%.
Back on track
While project economics are daunting for Gorgon, Tudor Pickering Holt (TPH) struck a bullish stance on the megaproject. A two-train plant had been expected to start up in 2009 and cost US$10 billion under the initial plan, it said, while the final development has added a third train and costs have reached an anticipated US$55 billion. Work on Gorgon was “badly managed”, TPH said, but it now offers attractive cash flow.
Contracts have been struck at attractive rates, it continued, royalties are only 10%, shipping costs to Asia are low and tax should not be payable for some years, based on the huge investments made. As such, TPH said at a price of US$60 per barrel, the netback from Gorgon should be around US$4 per 1,000 cubic feet (US$113 per 1,000 cubic metres).
There has been speculation about the addition of a fourth train at Gorgon. While there appears to be enough gas in the region to make such a plan feasible, economics do not currently support such a plan. Chevron has said another 5.2 million tonne per year train could be built, using the 11 trillion cubic feet (311.5 billion cubic metres) of gas at the Chandon and Geryon fields.
LNG production is ramping up, in Australia and beyond. Australia Pacific LNG (APLNG) shipped its first cargo in January 2016. Two trains at Queensland Curtis LNG (QCLNG) were brought on stream in 2015.
Chevron also recently confirmed that its Angola LNG project would be restarted in the second quarter of this year, while the first of the US LNG export projects, Cheniere Energy’s Sabine Pass, started in February.
Wheatstone LNG is due to reach first LNG by mid-2017, while Shell’s Prelude project should